FAA predicts steady growth for US airline industry after 2012

Washington DC
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US carriers will be slightly smaller and slightly more profitable in a slowing economy this year, then resume growing at a faster pace in 2013 and average 3.1% annual capacity growth over the next 20 years, the Federal Aviation Administration says in a new forecast released today.

With the IHS Global Insight consultancy predicting 1.6% growth for US gross domestic product, the FAA's annual forecast predicts that mainline capacity will decline by 0.8% this year, and regional fleets will decline by 0.5% in 2012.

But the downturn will be short-lived.

In 2013, an improving US economy will see revenue passenger miles rising by 2.6%, outpacing capacity growth of 2.1%, the FAA says.

System capacity is then expected to grow at an average rate of 3.1% over the next 20 years, slightly faster than a projected GDP growth of 2.5% for the last 15 years of that period, the FAA says.

Industry economists welcomed the near-term forecast showing airline fares and yields increasing faster than relatively constrained capacity growth, reversing a long-term trend of capacity growth outpacing demand and crimping profits.

John Heimlich, vice-president and chief economist for Airlines for America, called the near-term forecast a "cause for celebration".

"God forbid our fares would keep pace with inflation over the next few years," he says, speaking on a panel at the FAA Forecast Conference.

Heimlich, however, notes that the economic projections depend on the accuracy of fuel price estimates. Right now, airline profits are still holding up despite a spike in jet fuel costs.

"If you didn't see that picture," Heimlich says, "you'd see a future decline in operations over time."

But Heimlich credits airlines for focusing heavily over the last few years on reducing fixed costs in their operations.

"Volatility is now the norm. You have to expect it and deal with it," Heimlich says. "Rarely do we have positive shocks. They tend to be negative."

Mairead Lavery, vice-president of strategy, business development and structured finance for Bombardier, also spoke on the panel, and predicted a shift in capacity from 50-seat aircraft to larger regional jets, as well as increasing demand for commercial narrowbody aircraft.